• Medical bills
• Lost income
• Other injury-related costs
Why no-fault car insurance exists
How does no-fault auto insurance work?
Advantages of no-fault car insurance
Saving on no-fault auto insurance
- True no-fault states. No-fault states require you to purchase no-fault insurance. This is also called Personal Injury Protection (PIP) insurance. True no-fault states also restrict your ability to sue an at-fault driver.
- Optional or "choice" no-fault states. Drivers in optional no-fault states can go with the no-fault system or opt out and choose a traditional tort-liability policy. If you've opted in, you abide by the same rules as drivers in true no-fault states, meaning your ability to sue another driver is limited. At the same time, other drivers can't sue you for minor collisions either.
- Traditional liability with PIP states. Some states allow you to add no-fault (PIP) coverage to your traditional liability coverage. In these states, your insurer covers your injury damages regardless of fault, but there are no restrictions concerning lawsuits.
No-fault insurance in Michigan: A special caseAccording to Michigan's Department of Insurance and Financial Services, the state requires drivers to purchase no-fault auto insurance that includes the following:
- PIP. This is intended to cover all your medical costs, pays up to 85% of your lost income for up to three years (up to $5,398 per month) and can pay your family a death benefit in the event you die. PIP benefits include up to $20 per day to purchase household service providers that you must hire due to injury.
- Property protection. Your no-fault auto insurance must pay up to $1 million for damage your car causes to property owned by others.
- Residual liability. Insured people are protected from being sued except in special situations.
Why no-fault car insurance existsNo-fault insurance was proposed back in the 1930s by a group from Columbia University, but the idea got no traction until the 1960s, when lawmakers and the public became concerned about the costs associated with minor injury accidents. Massachusetts approved the first no-fault legislation in 1970, followed by similar laws in a host of other states. At its peak, the no-fault concept was established in 24 states.
In true no-fault states, only accidents in which the medical expenses reach a certain threshold or the injuries meet the state's legal definition of "serious" can be the basis of a lawsuit against the at-fault party. No-fault insurance systems were implemented in an attempt to achieve the following:
• Quicker payment of claims
• Victim's reimbursement not split with lawyers
• Lower insurance rates
• Fewer lawsuits to defend and reduced legal costs to insurers
• No subsidizing uninsured motorists
• Fraudulent medical claims
• Litigation did not decrease - instead of suing at-fault drivers, many accident victims switched to suing their own insurers for denied or insufficient reimbursement
• High coverage limits led to exorbitant payouts
• Bad drivers were not punished sufficiently to change behavior
1. You are injured in a car accident.
2. Regardless of who is at fault, you file a claim with your insurer for expenses related to your injuries.
3. Your insurer reviews your claim and researches the accidents' circumstances.
4. Benefits to which you are entitled are paid by your insurer.
5. You may not sue the at-fault party and he/she may not sue you, unless criteria are met for “serious” damages.
What does no-fault insurance cover?Your policy benefits generally cover your:
1. Pain and suffering
3. Minor disfigurement
4. Punitive damages*
To be compensated for property damage, such as repairs to your car and other property, you must file a traditional liability or collision claim, and the insurers will investigate and determine who was at fault and who owes whom. If you're not at fault, the other driver's liability policy should cover your damages; if you caused the accident, your own collision coverage should pay. (Note: collision insurance may not be required if you own your car outright; if you want this coverage, you have to purchase it as an option.)
No-fault restrictions on lawsuitsNo-fault laws make it harder to sue for non-economic damages, such as pain and suffering for seemingly minor injuries. If you get a whiplash, for example, you're unlikely to meet the threshold for a lawsuit--soft tissue damage is not considered a serious injury. Some states specify the types of injuries that allow you to step outside the no-fault system and file a lawsuit; these are called "verbal" states because the allowed injuries are described in words. Other states set their thresholds at certain levels of medical costs ("monetary" states) or length of disability.
Paying medical costs in a no-fault stateSome states require that you use your PIP benefits to pay medical costs first, then have your health insurer pick up the rest; other states require you to use your medical insurance first, then use PIP to cover deductibles and non-medical expenses. In some states, the funds are paid directly to medical providers, while in others, the check goes directly to you.
Will your insurance rates go up if an accident wasn't your fault?In a no-fault car accident, the term "no-fault" does not mean that no-one cares who's responsible for causing an accident. It just means that injury benefits are paid by each party's insurer without regard to who is at fault. However, both insurers do investigate and assign blame.
Additional reporting by Gina Pogol.Find affordable auto insurance now >